Amazon's Whole Foods deal an online game changer

Amazon.com Inc. has officially announced the purchase of natural grocery retailer Whole Foods Market, for $13.7 billion, expected to expand markets and the online delivery of organics, potentially at lower margins and consumer prices, probably the last chance for a company to make a success in the online grocery market that should help Amazon in its battle with industry major Walmart.

On Friday, Whole Foods customers received an email with the following statement: “Today marks the beginning of an exciting new chapter in Whole Foods Market’s history with the announcement that we’ve entered into an agreement to merge with Amazon.

Amazon is an innovative company, and we are excited about our partnership. We believe it presents an incredible opportunity to take Whole Foods Market’s mission and purpose to new levels and will create significant value for our stakeholders – including you, our most loyal customers.

We want to assure you that Amazon shares Whole Foods Market’s deep commitment to quality and customer service. We will continue to operate our stores and deliver the highest quality, delicious natural and organic products that you’ve come to love and trust from Whole Foods Market.

No artificial flavors, colors, preservatives, sweeteners or hydrogenated fats will ever be in any of the food we sell. Meat will still come from animals raised with no-added growth hormones, ever. And all eggs in our dairy cases will continue to come from cage-free hens that aren’t given antibiotics. Those standards are core to Whole Foods Market, and we will remain committed to them.

Whether you’ve been a Whole Foodie for 30 days or 30 years, you have been an important part of making Whole Foods Market what it is today. We look forward to sharing the next chapter with you.”

John Mackey, Whole Foods Market co-founder and CEO, said: “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience, and innovation to our customers."

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthier,” said Jeff Bezos, Amazon founder, and CEO. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Completion of the transaction is subject to approval by Whole Foods Market's shareholders, regulatory approvals, and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

Why would Amazon now want to buy the top retail chain of natural health and organic foods?

Whole Foods has over 450 shops and has spent almost 40 years building a brand with a good reputation and thousands of loyal customers. But the retailer also has been facing fierce competition from mainstream supermarket chains and discounters like Kroger, Costco, and Walmart. These giant multinationals are now offering certified organic foods at lower prices.

Plans to expand to 1200 Whole Food stores in the US dropped. Instead, the company closed nine stores.

In February, John Mackey said that in this increasingly competitive marketplace the company was committed to “taking every step necessary to improve comps and deliver higher returns for our shareholders.”

At the end of the fiscal year 2016, WFM had sales of approximately US$16 billion and operated 467 stores in the United States, Canada, and the United Kingdom.

Meanwhile, e-commerce giant Amazon has been shaping the new way people is purchasing all kinds of consumer goods, from books to electronics and housewares.

Food is the most common purchase everyone does. But grocery shopping is also an activity consumers either enjoy or find too much time-consuming. Jeff Bezos also aims to redefine the way we buy groceries.

With the introduction of AmazonFresh Pickup in Seattle this March, Amazon is now attempting to move grocery shopping away from the typical brick and mortar supermarkets, opening grocery warehouses in strategic locations to deliver fast the foods and brands you like after selecting them with a couple of clicks from your screen anywhere you are.

With the merger Amazon can take advantage of the work Whole Foods has done right over the past four decades: branding, building loyalty, opening stores in key locations and educating consumers about the link between what we eat and our health. Amazon will also have better purchasing power when negotiating deals with local, regional and overseas suppliers. The digital retailer may also offer incentives like discounts and points if the customers pick up their groceries at a Whole Foods location nearby.

Amazon may even consider introducing foods under private label; approach most conventional supermarket chains have taken when adding organic foods. It may even expand the Whole Foods' 365 Everyday Value brand introduced in 2015.

Whole Foods customers may or may not be Amazon customers yet, but both audiences are ready to pay for good and efficient service and like to learn about the brands they purchase. They also value convenience.